What Next

Markets have dropped 28% or so from their highs in just 3 years. Verily a compression of tides into faster intensity. Conventionally such falls recur after 5+ years. I feel the waves would be even faster and more severe on either side.

Where do we look for answers ? Some sage counsel of an octogenarian ? “I have shoes older than people who write these articles” a wise old analyst said of high flying money managers who ‘got’ what IT was all about in 1990s. While correct, it can lull one into complacency. Just because one has been in a field for 10 years does not make one better as every possible solution. Some young person with very bright consciousness can have breathtaking answers to existing problems – we never thought about. Inverse is just as true, the man who has not read history is like a baby in the world. You have to find your own answers as per your style.

I am reminded of another quote, “Make money on Wall Street and bury it on Main Street”, a view that share prices are volatile and a bubble while home/business is tangible. Those of us who have not or did not bury it on main street, we’d better have bought stocks businesslike.

FIIs are in panic mode, I’ve noticed it time and again in complex projects or equity markets – known pains take precedence over unknown pleasures, its how our mind works. Pain of investment in US growing at 2% rather than unknown emerging economies. These reasons are not only historical but also hysterical. FIIs seeking safety/known pain of dollar denominated investments.

We should feel lucky to be in this once in a lifetime bull market in India (I can imagine if it does not feel that way today 🙂 when investors are feeling being sandpapered to death). I suggest you mark down your portfolio another 30% from today’s prices and then continue to buy. This is the buy and hold view. I am sure the investment managers will not be taking salaries home which look like telephone numbers this year nor the liquidity in the system challenge double martini.How soon and end to this will come, it cannot be said for certain, 2012 looks miserable ahead for Europe and companies that are India focused will distinguish themselves. A similar experience in United States during high inflation and interest rate era resulted in stock market flat from 1966 to 1982, Zero upside after 16 years of faithful buy-and-hold and re-investment of dividend. Try telling it to someone who shudders holding stocks for 2-3 year ! or a newbie who expects 10% returns per month. A man would not expect to be half as good as a trained circus clown or salesman, but come investing he wants to be successful right away in stock market.

Current bear can last more than a year, while this is no attempt to predict but this mindset may avoid a suicide if we are well prepared. India’s demographics are so well placed for economic boom and Monkeys err only one, of Delhi has already been slapped on their wrist, sorry, cheek to turn the wheel

I don’t feel gold, real estate or any other asset class with match equity returns over next 3-5 years in India. Not sure how dollar depreciation, oil price, Italian bankruptcy, mood in EU affects growth of wheat in India and need for tractor or shoes for their feet in India.

While the monkeys have let us down, we should take it for granted that they will continue to.

Govt. cannot solve our problems, we can take care of this ourselves, this is the new age thinking, we don’t have to depend on government to represent us, we can form the bonds ourselves, be it economic with the West or people to people with Pakistan. The problem that we have to overcome with Govt. is that its still the biggest outlaw and mafia, taking our taxes with impunity sans accountability, but hey that is not my battle.

Information overload would do us no good, one makes more money by printing information than following it. In this age of up-to-the-minute information companies are only as good as their last three months performance.

Slow down, relax, stop watching share prices, think in months/years not days, weeks, switch off CNBC, I have for last two years. Day to day trend does not matter except for a trader, balance sheet hardly changes that fast and knowledge becomes chatter. Go out and buy some truffles lying on the floor for your funky self. It can take months or years for not-so-smart money to realize the value. If the Sensex does come down to 12000, we can revisit the investment list and I am bullish on same usual cheap suspects. Meanwhile, do something great and dazzling that no one has done before to show that Gods creativity principle exists in you.

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5 Responses

🙂 Well timed words of wisdom n Advice, Dear Amit. As Munger says: “It takes character to sit there with all that cash and do nothing.”..You rightly said TIME has come to sit in silence and do something creative..Only TIME can cure issues with Market now.

Do you think that our nifty is gonna correct till it reaches a PE of 13-14 as in most of the bear phases or markets have fallen till 12 PE levels..Do you use this method for investing in bear phases. What are the indicators/methods that you use to predict the downside limit in the markets… Though it is impossible to Judge the bottom but one can at-least predict the probable downside..especially a person like you 🙂

Nobody knows that including me, if someone claims to know the answer, then be suspect of that person.

Nifty can stay at 4000 for 5 years also, but only because of favorable demographics in India its unlikely to. There is still some intelligence and tolerance left in people, therefore it will save the day, otherwise India could be Somalia.

Situation in India is very very bad. India is one of the few countries in World with twin deficits, Current Account Deficit and Fiscal Deficit in including Ireland, Greece, UK and USA.

Therefore a default like 1991 can recur, Govt. is dragging feet, there is lack of firm resolve and corruption. Its surprising the country is not going to the dogs, its always because of some conscience left in people.

That said, if the momentum, policies and corruption is wiped out, then it does not take long for country to transform itself from very poor to super rich and developed, given that India already has talent, 10-20 years is sufficient.

Hi Amit,Great Post. You are right about 1966 to 1982. Even Warren Buffett closed his partnership and liquidated all assets in 1969. But he did not left the market. He made his biggest investments in that same period. American Express and Berkshire Hathaway in 1965.National Indemnity insurance in 1967Washington Post in 1973Buffalo Evening News in 1977ABC in 1979.

I agree with your view that this is good time to invest in stocks for long term. Banking, Media, Insurance, FMCG, Pharma, Rating Agencies, IT any company with good pricing power and good franchisee model will grow. Investors just need to focus on companies with High ROE, Low Debt To Profit Ratio and High Net Profit Margin and good Free Cash Flow (i.e. Low Capital Expenditure)

At times we may not be able to get all qualities and may have to sacrifice one. i.e.” High ROE, Low Debt To Profit Ratio and High Net Profit Margin and good Free Cash Flow (i.e. Low Capital Expenditure) “

For ex: McLane purchase of Buffett in 2003, it has Net Profit Margin of only 1% pretax.

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Amit Arora

B.Com(Hons) Gold Medalist - Delhi University, MBA.

Served United Nations between 2001-2006 in Europe.

Since 2007 consultant for Inland Revenue, Ministry of Economic Development, Ministry of Social Development, Ministry of Justice, Ministry of Business Innovation and Employment (NZ Govt. Organisations).